Archive for Establishing Credit
10 Tips on How to Establish Good Credit
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Attempting to establish good credit is a task that takes a little effort, a lot of time, and can even cost some money! In order to establish good credit you have to use credit, and this almost always means incurring an interest charge. Fortunately, you can use these strategies to keep your interest payments down while getting the biggest boost to your credit scores.
To establish good credit, you simply need to jump into the credit cycle. You first acquire some credit, use it when needed, and repay as required. After a period of this activity, you acquire some more; use it when you need it, and so on…
By making small charges to your account and paying them on or before the due date, you slowly build your credit and become eligible for credit line increases. Its okay to pay personal consumer accounts on or right before the due date, but you’ll get an even better credit rating for business accounts if you make your payment right after you receive the bill, versus waiting until closer to the due date.
In most cases, you can set up your payments to be deducted automatically out of your checking account on the due date. If you pay off your balances in full every month, this ensures the credit bureaus will always show a balance on the account, and also allows you to keep your money until the exact day the payment is due. If you pay off your balance too far ahead of the due date; it may not reflect a balance on your credit report, which doesn’t help your scores.
You continually increase the quality of your credit as well as the quantity. You’ll replace store charge cards with those from major imprints, such as Visa, M/C or American Express. You’ll convert secured lines of credit to unsecured ones. You’ll increase your borrowing power with your relationships. Before you know it, you have built substantial credit coffers.
Well start from the beginning, with steps to establish or re-establish credit for someone who has no or formerly bad credit. If you already have credit, the challenge is to make sure your credit grows in the ways you need it to for your business. Read More→
How to Establish a Good Credit History
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A good credit history is established by keeping your commitments to repay credit cards or loans as agreed, making your payments on time and in the amounts required.
Neglecting to do so make it difficult and costly for you to borrow money for the things you need for yourself and your family. This can affect essential areas in your life such as renting an apartment or buying a home, getting insurance, an education or even medical care.
Plan for emergencies!
Things in life occur that are not under our control, such as losing a job, or getting into a car accident, which can impact your ability to repay your bills. This is why it’s critical to set up a savings account and contribute to it on a regular basis. This will ensure you have emergency funds available to honor your credit agreements in spite of any unforeseen challenges.
Unfortunately, creditors don’t care what your situation is. If you’re late on a payment, they’re going to report it as late, and that late payment will remain on your credit report for 7 years. It will also have an impact on your credit score for the first two years. That’s pretty harsh for just one 30 day late payment, but that’s how it works.
What if you don’t have credit?
If you have not yet established credit, or you do not use credit, it’s in your best interest to apply for one or two cards. It takes about 2 years to really establish a credit history with enough information in it for a lender to make a risk-based decision for large purchases. You do not have to keep a balance on your credit cards if you’re adverse to credit. Just charge a small amount every other month or so and pay off the balance. This will ensure the account remains open and active with the creditor, and updates will be transmitted to the credit bureaus accordingly, which will give you the credit history you need, along with a good credit score.
If you are trying to re-establish your credit, and you cannot qualify for a traditional credit card, then one option that is guaranteed for you is to obtain a “secured card”. With this type of card, you deposit typically $300 to $500 in an account with the creditor and that amount becomes your credit limit. Because you are using your own money, there is no risk to the creditor.
A couple things to make sure of when applying for a secured card:
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Make sure the company you’re applying with reports to at least one of the three major credit reporting agencies. If they do not, then move on, because if they do not report, you are losing a major benefit.
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Shop around for the lowest annual fee. All secured cards charge an annual fee, and some can be pretty hefty. Make sure to read the fine print first!
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Most secured card companies will allow you to get an “unsecured card” after about a year of making your payments on time. Be sure to check on this, because you don’t want to have a secured card any longer than you have to. It’s too costly.
If you belong to a credit union, ask them if they offer secured cards. About half of the nation’s credit unions offer secured cards to their members and they may offer lower interest rates and waive annual fees.
Use the secured credit cards carefully; paying off the debt each month. You do not get this type of card to carry a balance on it. Remember, you’re using your own money as collateral. You don’t need to pay the creditor interest on top of that.
Points to remember…
In summary, to establish a good credit history, remember to keep your overall debt at a reasonable level that is relative to your income. Generally speaking, your expenses should not exceed 20% of your net (after taxes) take home pay, excluding your housing payment.
No benefit for “authorized user” on credit reports….
Posted by: | CommentsWhen someone finds a loophole in the IRS rules, you’re going to see a bunch of folks exploiting it until the 
IRS figures it out and takes the loophole away from you. Ahh…..it was nice while it lasted huh? The same thing has happened with “authorized users” in regards to increasing your credit score by “piggy-backing” off of another’s positive account rating.
The following is the definition of an Authorized User: “Person permitted by a credit cardholder to charge goods and services on the cardholder’s account, but who is not responsible for repayment of the debt. The account displays on the credit reports of the cardholder as well as the authorized user.”
Originally, the purpose of an “authorized user” was to allow a family member or close relative to be added onto your account and that person was allowed to make charges against that account. This was especially helpful for young adults trying to establish credit for the first time. A parent would add their teenager onto an existing account of theirs and typically, this would be the first type of charge account a young person would have. With the parent’s guidance, they could teach their teenager the advantages and disadvantages of using credit, along with teaching them the responsibility that comes along with it. If they managed this type of account well, then it would reflect as such, in establishing a credit history and a good credit score to go along with it. This practice enables a person to qualify for things that they wouldn’t, under normal circumstances, qualify for, which constitutes a form of fraud.
Of course, scammers found this loophole in the credit scoring system and decided to abuse it for monetary gain. In the past few years, these scammers would solicit people who needed to establish or re-establish credit and they would be offered the opportunity to piggy-back off of someone else’s positive account, (that they didn’t know) for a fee. Once they were set up as an authorized user on this account, that person’s account and the credit history that went along with it, would automatically reflect on the authorized user’s credit report and would therefore generate a good credit score for them.
Unfortunately, because of this abuse, Authorized User accounts are no longer a contributing factor in credit scoring, so they will no longer benefit the authorized user in that respect. These types of accounts are still available thru creditors, and they will still reflect on the owner’s credit report and the authorized user’s credit report, which will show the account’s history, but the greatest benefit of the account reflecting in the credit scores is now history.
